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3 Tax Wise Methods for Supporting Parents!

 

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With the aging of America, many people are finding themselves supporting their parents.  While this could be a  burden in many ways, the IRS does offer at least 3 methods to write-off expenses of supporting your parents.

 Finance Your Parents’ Home

If your parents’ home is paid off and offers no deductions beyond property taxes, their total itemized deductions  may not be more than their standard deduction. In this case, consider buying or financing their home:

You can treat it as your second home and deduct mortgage interest and property taxes you pay so long as your name is on the loan.

You can buy the home (for fair market value), lease it back to them (again, for fair market value) and treat it as a rental. Net losses are deductible if you qualify for the rental real estate loss allowance or “real estate professional” status.

Example: Mom’s house is worth $100,000. You buy it for $1,000 down and Mom finances the rest at 6% for 30 years. You’ll pay $593.56 per month for principal and interest, plus whatever needed for taxes, maintenance, and insurance. You can lease it back for $600-800 to break roughly even.

Deduct Medical Expenses for Your Parent

If you claim your parent as a dependent (or if you would be eligible to do so except for the fact that their income exceeds the $4,050 exemption amount), you can deduct medical expenses you pay on your parent’s behalf (including long-term care costs) on your own return. If you’re single, claiming your parent may let you file as head of household, even if your parent lives in a nursing home. (See IRS Publication 502 for a list of deductible medical expenses.)

Consider a Multiple Support Declaration

A multiple support declaration lets you claim your parent as a dependent even if you don’t provide more than half of their support. This is a smart strategy when two or more siblings help support a parent. Here’s how it works:

  • You have to provide more than 10% of the person’s support.
  • You and the other contributors jointly have to provide more than half of the person’s support.
  • Each of the other contributors has to be eligible to claim the person as a dependent, except that they did not provide more than half of the support.
  • Each of the other contributors has to sign the Multiple Support Declaration giving you the exemption.

For those of you who are supporting your parents or may soon be, hopefully this information will help you plan how to write-off these potential expenses.

Should  you have any questions, please feel free to give me a call at 240-398-1216.

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Are Social Security Benefits Taxable? – Maybe

Are Social Security Benefits Taxable?

If taxpayers receive Social Security benefits, they may have to pay federal income tax on part of those benefits. These IRS tips will help taxpayers determine if they need to do so.

  • Form SSA-1099.  If taxpayers received Social Security benefits in 2016, they should receive a Form SSA-1099, Social Security Benefit Statement, showing the amount of their benefits.
  • Only Social Security.  If Social Security was a taxpayer’s only income in 2016, their benefits may not be taxable. They also may not need to file a federal income tax return. If they get income from other sources, they may have to pay taxes on some of their benefits.
  • Interactive Tax Tools.  Taxpayers can get answers to their tax questions with this helpful tool, Are My Social Security or Railroad Retirement Tier I Benefits Taxable, to see if any of their benefits are taxable. They can also visit IRS.gov and use the Interactive Tax Assistant tool.
  • Tax Formula.  Here’s a quick way to find out if a taxpayer must pay taxes on their Social Security benefits: Add one-half of the Social Security income to all other income, including tax-exempt interest. Then compare that amount to the base amount for their filing status. If the total is more than the base amount, some of their benefits may be taxable.
  • Base Amounts. The three base amounts are:
    • $25,000 – if taxpayers  are single, head of household, qualifying widow or widower with a dependent child or married filing separately and lived apart from their spouse for all of 2016
    • $32,000 – if they are married filing jointly
    • $0 – if they are married filing separately and lived with their spouse at any time during the year

All taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.

Additional IRS Resources:

If you have any additional questions regarding this or other income tax matters, please feel free to give me a call at 240-356-5050.

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Tax Filing Season Begins January 23, 2017 but….

WASHINGTON ― The Internal Revenue Service announced today that the nation’s tax season will begin Monday, Jan. 23, 2017 and reminded taxpayers claiming certain tax credits to expect a longer wait for refunds.

The IRS will begin accepting electronic tax returns that day, with more than 153 million individual tax returns expected to be filed in 2017. The IRS again expects more than four out of five tax returns will be prepared electronically using tax return preparation software.

Many software companies and tax professionals will be accepting tax returns before Jan. 23 and then will submit the returns when IRS systems open. The IRS will begin processing paper tax returns at the same time. There is no advantage to filing tax returns on paper in early January instead of waiting for the IRS to begin accepting e-filed returns.

The IRS reminds taxpayers that a new law requires the IRS to hold refunds claiming the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) until Feb. 15. In addition, the IRS wants taxpayers to be aware it will take several days for these refunds to be released and processed through financial institutions. Factoring in weekends and the President’s Day holiday, the IRS cautions that many affected taxpayers may not have actual access to their refunds until the week of Feb. 27.

“For this tax season, it’s more important than ever for taxpayers to plan ahead,” IRS Commissioner John Koskinen said. “People should make sure they have their year-end tax statements in hand, and we encourage people to file as they normally would, including those claiming the credits affected by the refund delay. Even with these significant changes, IRS employees and the entire tax community will be working hard to make this a smooth filing season for taxpayers.”

The IRS also reminds taxpayers that they should keep copies of their prior-year tax returns for at least three years. Taxpayers who are changing tax software products this filing season will need their adjusted gross income from their 2015 tax return in order to file electronically. The Electronic Filing Pin is no longer an option. Taxpayers can visit IRS.Gov/GetReady for more tips on preparing to file their 2016 tax return.


April 18 Filing Deadline

The filing deadline to submit 2016 tax returns is Tuesday, April 18, 2017, rather than the traditional April 15 date. In 2017, April 15 falls on a Saturday, and this would usually move the filing deadline to the following Monday – April 17. However, Emancipation Day – a legal holiday in the District of Columbia – will be observed on that Monday, which pushes the nation’s filing deadline to Tuesday, April 18, 2017. Under the tax law, legal holidays in the District of Columbia affect the filing deadline across the nation.

“The opening of filing season reflects months and months of work by IRS employees,” Koskinen said. “This year, we had a number of important legislative changes to program into our systems, including the EITC refund date, as well as dealing with resource limitations. Our systems require extensive programming and testing beforehand to ensure we’re ready to accept and process more than 150 million returns.”

The IRS also has been working with the tax industry and state revenue departments as part of the Security Summit initiative to continue strengthening processing systems to protect taxpayers from identity theft and refund fraud. A number of new provisions are being added in 2017 to expand progress made during the past year.

Refunds in 2017

Choosing e-file and direct deposit for refunds remains the fastest and safest way to file an accurate income tax return and receive a refund.

The IRS still anticipates issuing more than nine out of 10 refunds in less than 21 days, but there are some important factors to keep in mind for taxpayers.

Beginning in 2017, a new law requires the IRS to hold refunds on tax returns claiming the Earned Income Tax Credit or the Additional Child Tax Credit until mid-February. Under the change required by Congress in the Protecting Americans from Tax Hikes (PATH) Act, the IRS must hold the entire refund — even the portion not associated with the EITC and ACTC — until at least Feb. 15. This change helps ensure that taxpayers get the refund they are owed by giving the IRS more time to help detect and prevent fraud.

As in past years, the IRS will begin accepting and processing tax returns once the filing season begins. All taxpayers should file as usual, and tax return preparers should also submit returns as they normally do – including returns claiming EITC and ACTC.

The IRS will begin releasing EITC and ACTC refunds starting Feb. 15. However, the IRS cautions taxpayers that these refunds likely won’t arrive in bank accounts or on debit cards until the week of Feb. 27 (assuming there are no processing issues with the tax return and the taxpayer chose direct deposit). This additional period is due to several factors, including banking and financial systems needing time to process deposits.

After refunds leave the IRS, it takes additional time for them to be processed and for financial institutions to accept and deposit the refunds to bank accounts and products. The IRS reminds taxpayers many financial institutions do not process payments on weekends or holidays, which can affect when refunds reach taxpayers. For EITC and ACTC filers, the three-day holiday weekend involving President’s Day may affect their refund timing.

Where’s My Refund? ‎on IRS.gov and the IRS2Go phone app will be updated with projected deposit dates for early EITC and ACTC refund filers a few days after Feb. 15. Taxpayers will not see a refund date on Where’s My Refund? ‎or through their software packages until then. The IRS, tax preparers and tax software will not have additional information on refund dates, so Where’s My Refund? remains the best way to check the status of a refund.

For my past, current and future clients, you can schedule your tax preparation appointment now by going to clicking this Appointment Link.   See you soon.

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Be Aware of Fake IRS Email Bills!

From the IRS Wire Service:follow-the-money

IRS and Security Summit Partners Warn of Fake Tax Bill Emails

WASHINGTON — The Internal Revenue Service and its Security Summit partners today issued an alert to taxpayers and tax professionals to be on guard against fake emails purporting to contain an IRS tax bill related to the Affordable Care Act.

The IRS has received numerous reports around the country of scammers sending a fraudulent version of CP2000 notices for tax year 2015. Generally, the scam involves an email that includes the fake CP2000 as an attachment. The issue has been reported to the Treasury Inspector General for Tax Administration for investigation.

The CP2000 is a notice commonly mailed to taxpayers through the United States Postal Service. It is never sent as part of an email to taxpayers. The indicators are:

These notices are being sent electronically, even though the IRS does not initiate contact with taxpayers by email or through social media platforms;
The CP 2000 notices appear to be issued from an Austin, Texas, address;
The underreported issue is related to the Affordable Care Act (ACA) requesting information regarding 2014 coverage;
The payment voucher lists the letter number as 105C.

The fraudulent CP2000 notice included a payment request that taxpayers mail a check made out to “I.R.S.” to the “Austin Processing Center” at a Post Office Box address. This is in addition to a “payment” link within the email itself.

IRS impersonation scams take many forms: threatening telephone calls, phishing emails and demanding letters. Learn more at Reporting Phishing and Online Scams.

Taxpayers or tax professionals who receive this scam email should forward it to phishing@irs.gov and then delete it from their email account.

Taxpayers and tax professionals generally can do a keyword search on IRS.gov for any notice they receive. Taxpayers who receive a notice or letter can view explanations and images of common correspondence on IRS.gov at Understanding Your IRS Notice or Letter.

To determine if a CP2000 notice you received in the mail is real, see the Understanding Your CP2000 Notice, which includes an image of a real notice.

A CP2000 is generated by the IRS Automated Underreporter Program when income reported from third-party sources such as an employer does not match the income reported on the tax return. It provides extensive instructions to taxpayers about what to do if they agree or disagree that additional tax is owed.

It also requests that a check be made out to “United States Treasury” if the taxpayer agrees additional tax is owed. Or, if taxpayers are unable to pay, it provides instructions for payment options such as installment payments.

The IRS and its Security Summit partners – the state tax agencies and the private-sector tax industry – are conducting a campaign to raise awareness among taxpayer and tax professionals about increasing their security and becoming familiar with various tax-related scams. Learn more at Taxes. Security. Together. or Protect Your Clients; Protect Yourself.

Taxpayers and tax professional should always beware of any unsolicited email purported to be from the IRS or any unknown source. They should never open an attachment or click on a link within an email sent by sources they do not know.

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Let the IRS Help Pay for Your Next Vehicle!

The IRS Will Contribute as much as $25,000
when you purchase your next vehicle!

cashandkeysAs a business owner, you spend a lot of time, mileage and money on your vehicle and it can get expensive, but you have a “Uncle” who can help you if you know how to ask!

Your “Uncle Sam” through the IRS can help you purchase your new vehicle in 3 different ways depending upon the vehicle your purchase –

  • Deduct up to $11,060 for your vehicle weighting less than 6,000 pounds.
  • Deduct up to $25,000 for your vehicle (SUV, Truck or Van) weighing more 6,000 but less than 14,000 pounds.
  • Get a Tax Credit up to $7,500 for your Electric or Hybrid Vehicle and still deduct up to $11,060 for your vehicle weighing less than 6,000 pounds.

    • Of course, you must use the vehicle more than 50% in your business and it must be new (or new to you). (You can’t qualify using a vehicle that was converted from personal use to business use.)

    If you purchased a vehicle in the past 3 years and did not take advantage of these deductions, we may be able to file amended return to reduce your tax debt or increase your refunds.

    If you purchased in 2015 and filed an extension, let’s review your return to see if you’ve claimed this deduction. Take advantage of these deduction while your “Uncle” is still in the giving mood!

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    Don’t Forget the Energy Tax Credits

    Most improvements to your personal residence don’t provide an immediate tax benefits, however, you may still receive a tax credit for energy efficient improvements!

    Home Energy Tax Credits Save You Money at Tax Time

    Certain energy-efficient home improvements can cut your energy bills and save you money at tax time. Here are some key facts that you should know about home energy tax credits:

    Non-Business Energy Property Credit

    Part of this credit is worth 10 percent of the cost of certain qualified energy-saving items you added to your main home last year. This may include items such as insulation, windows, doors and roofs.
    The other part of the credit is not a percentage of the cost. This part of the credit is for the actual cost of certain property. This may include items such as water heaters and heating and air conditioning systems. The credit amount for each type of property has a different dollar limit.
    This credit has a maximum lifetime limit of $500. You may only use $200 of this limit for windows.
    Your main home must be located in the U.S. to qualify for the credit.
    Be sure you have the written certification from the manufacturer that their product qualifies for this tax credit. They usually post it on their website or include it with the product’s packaging. You can rely on it to claim the credit, but do not attach it to your return. Keep it with your tax records.
    You must place qualifying improvements in service in your principal residence by Dec. 31, 2016.

    Residential Energy Efficient Property Credit

    This tax credit is 30 percent of the cost of alternative energy equipment installed on or in your home.
    Qualified equipment includes solar hot water heaters, solar electric equipment, wind turbines and fuel cell property.
    Qualified wind turbine and fuel cell property must be placed into service by Dec. 31, 2016. Hot water heaters and solar electric equipment must be placed in to service by Dec. 31, 2021.
    The tax credit for qualified fuel cell property is limited to $500 for each one-half kilowatt of capacity. The amount for other qualified expenditures does not have a limit. If your credit is more than the tax you owe, you can carry forward the unused portion of this credit to next year’s tax return. • The home must be in the U.S. It does not have to be your main home, unless the alternative energy equipment is qualified fuel cell property.

    Use Form 5695, Residential Energy Credits, to claim these credits. For more on this topic refer to the form’s instructions. You can get IRS forms on IRS.gov/forms anytime.

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    What’s Your “Just”?

    1126 “If I could just____________, everything would be great.” How would you fill in the blank? What’s your just?

    What’s the one issue, the one frustration, the one relationship that if you could just get it right, your life would be wonderful.

    Now if you’ve figured out what your just is, what are you doing about it? Why has it taken so long to take care of your just?

    Who do you know who has dealt with the same just and successfully conquered it?

    Do you really want to take care of your just? Okay, just asking?

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    IRS Warns Tax Payers of Automated Phone Scam Calls

    From the IRS Wire Service – August 2, 2016

      WASHINGTON — The Internal Revenue Service today warned taxpayers to stay vigilant against an increase of IRS impersonation scams in the form of automated calls and new tactics from scammers demanding tax payments on iTunes and other gift cards.

      The IRS has seen an increase in “robo-calls” where scammers leave urgent callback requests through the phone telling taxpayers to call back to settle their “tax bill.” These fake calls generally claim to be the last warning before legal action is taken. Once the victim calls back, the scammers may threaten to arrest, deport or revoke the driver’s license of the victim if they don’t agree to pay.

      “It used to be that most of these bogus calls would come from a live-person. Scammers are evolving and using more and more automated calls in an effort to reach the largest number of victims possible,” said IRS Commissioner John Koskinen. “Taxpayers should remain alert for this summer surge of phone scams, and watch for clear warning signs as these scammers change tactics.”

      In the latest trend, IRS impersonators are demanding payments on iTunes and other gift cards. The IRS reminds taxpayers that any request to settle a tax bill by putting money on any form of gift card is a clear indication of a scam.

      Some examples of the varied tactics seen this year are:

      Demanding payment for a “Federal Student Tax”–IR-2016-81
      Demanding immediate tax payment for taxes owed on an iTunes or other type of gift card
      Soliciting W-2 information from payroll and human resources professionals–IR-2016-34
      “Verifying” tax return information over the phone–IR-2016-40
      Pretending to be from the tax preparation industry–IR-2016-28

      Since these bogus calls can take many forms and scammers are constantly changing their strategies, knowing the telltale signs is the best way to avoid becoming a victim.

      The IRS Will Never:

      Call to demand immediate payment over the phone, nor will the agency call about taxes owed without first having mailed you a bill.
      Threaten to immediately bring in local police or other law-enforcement groups to have you arrested for not paying.
      Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
      Require you to use a specific payment method for your taxes, such as a prepaid debit card, gift card or wire transfer.
      Ask for credit or debit card numbers over the phone.

      If you get a phone call from someone claiming to be from the IRS and asking for money and you don’t owe taxes, here’s what you should do:

      Do not give out any information. Hang up immediately.

      Contact TIGTA to report the call. Use their “IRS Impersonation Scam Reporting” web page or call 800-366-4484.

      Report it to the Federal Trade Commission. Use the “FTC Complaint Assistant” on FTC.gov. Please add “IRS Telephone Scam” in the notes.

      If you think you might owe taxes, call the IRS directly at 800-829-1040 or contact me if you need additional help.

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    Little Things Add Up To Big Business Expense Deductions

    Sometimes, saving money on your tax return comes down to little more than keeping good records. And that means tracking all those little expenses, because they can add up throughout the year. Sure, you know to deduct wages and insurance, and you’re even taking your home office deduction. The question is, are you capturing all the small expenses, too?

    Frequently Forgotten Expenses

    It’s staggering how much goes into running a small business, and how quickly things can become tangled between business and personal accounts – especially for sole proprietors. Think about it. You’re doing your grocery shopping and remember you need a new desk calendar, so you toss one in your cart. Or you’re Christmas shopping on Amazon and see a good deal on printer ink, so you stock up. Or maybe you’re meeting a potential client for breakfast and while you remembered to deduct your meal, you forgot about the mileage to get there.

    These types of common but small expenses can quickly add up to a major tax deduction. The trick is remembering to deduct them, and keeping solid records. Some of the most common (and often overlooked) business expenses include:

    • PayPal and other payment processing fees-make sure you’re keeping track and adding them to your tax return as “bank fees.”
    • Dues and subscriptions. Do you belong to paid forums or membership sites related to your business? These charges are deductible as well.
    • Office supplies. This includes small stuff like paper and pencils and printer ink.
    • Domain names and hosting. Your Hostgator bill, GoDaddy purchases, etc.
    • Advertising. Whether you do pay-per-click via Google or Facebook, buy mailing lists, or pay for ad placement on other websites, it’s all deductible.
    • Commissions. Do you have sales staff? Deduct those payments!

    Keeping Good Records

    The key to making the most of your tax deductions lies in keeping good records. For most small businesses, the simplest solution is to use a software program set up specifically for this purpose, such as Quickbooks or Peachtree. No matter what solution you choose, though, make sure you consistently record your expenses. The last thing you want to do is scramble at the end of the year to find receipts and enter data. That would be a nightmare.

    Instead, set aside time each week (or more often, if necessary) to update your books. If you find it overwhelming and you tend to put it off, consider hiring someone (me) to maintain your accounts for you. Remember – what you pay (me) him or her is deductible as well!

    Finding all those hidden expenses can mean the difference between a huge tax bill and one that is more manageable. While the things listed here will get you started, it’s a good idea to also speak with a tax professional (me). Make sure (I) he or she fully understands the nature of your business, so he or she can ask the right questions and make appropriate recommendations for your business write-offs.

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    The Truth About “Pennies on the Dollar”!

    j0314327What exactly does “pennies on the dollar” refer to? It is a reference to the IRS Offer in Compromise program, which allows eligible tax debtors to pay the IRS an amount of money that is less than what they owe in order to wipe out their entire tax liability.

    In advertising, you’ll hear companies talk about settling for 20%, 10%, or even less. These ads, and the sales people you talk to on the phone, are trying to sell you an Offer in Compromise service package. Many of their web sites even have little interactive calculators where you type in how much you owe the IRS, and it’ll spit out a, “You may only have to pay $xxx” message.

    The phrase “pennies on the dollar” was actually determined several years ago by the IRS to be a form of deceptive advertising, and they explicitly instruct licensed practitioners that the use of this phrase is a violation of Circular 230, which is the practitioner behavior handbook for working with the IRS. However, since the IRS doesn’t have jurisdiction over firms that just market these services, it comes into the FTC’s purview to look out for these deceptive marketing practices.

    Some ads, web sites, and salesmen are out there trying to convince taxpayers that what you settle for is some fixed percentage of your tax debt. However, this is blatantly incorrect. There is no absolutely no provision in the tax code for allowing a taxpayer to pay some set percentage of their tax liability and just calling it good. It has never existed, and most likely never will.

    Instead, the amount of your Offer in Compromise settlement is calculated using a very, very strict formula…And the formula is NOT secret — it’s available on a worksheet in IRS publication 656B.

    Based on this formula, if you have equity in assets that exceeds your tax debt, you simply don’t qualify. Period. End of story. For most individuals, the common thing is going to be equity in your house or rental properties, or perhaps equity in a collection of classic cars, stamps, coins, guns, art, etc. If the value of ANY of that stuff is greater than your tax debt, you do not qualify for the Offer program and cannot settle for “pennies on the dollar” – there is no way around this.

    In the same vein, if you are a high income earner, it’s also highly unlikely you will qualify for the Offer program in general. The reason for this is that the IRS only allows certain amounts of money every month as “eligible expenses” for housing, cars, food, etc. If your lifestyle exceeds these amounts, the IRS doesn’t care — they will only allow you to claim the National Standard expenses. Any monthly income over those amounts gets multiplied by either 48 or 60, and THAT number goes into your offer amount.
    In these circumstances, you may qualify for a period of up to 12 months to make a “lifestyle adjustment”, and reduce your living expenses to come into line with IRS standards. This will often involve selling luxury homes and getting rid of toys such as cars and boats. Keep in mind that these items are all covered by your tax lien, so any proceeds from the sale of these items technically is owned by the IRS, and should be paid over to them. A good tax representative can assist you with structuring these sales so that both you and the IRS get something out of it.

    Beware of anybody promising that your tax debt can be settled for some fixed percentage of the debt. That’s not the way it works, and never has. Anybody trying to sell you on that idea is selling you swampland in Florida, and you should seek assistance elsewhere.

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